For equity options, the pricing of options depends on the existence of a replicating portfolio, so you can price the option as the constituents of that replicating portfolio. However, I am not seeing ...

If I buy a call calendar and underlying drops 5%, the front month short call will get further out of money and will lose value, resulting in a gain since I am short the front month option.
What about ...

I am a newbie. Please help me understand how to resolve the exercise 2.2 from the book "The concept and practice of Mathematical Finance". The solution from the book says that our super-replicating ...

Sometimes, I find an option where the total time value of the option may be 5 cents(rest is intrinsic value) and there are about 15 days to expiry and theta is .08 (8 cents).
How is this possible. If ...

If an option A has higher vega than option B, does that also mean that A has a higher IV than B?
I understand that by definition, a higher vega means that A's price is more sensitive to its IV than B.
...

There is a paper by Dragulescu and Yakovenko (DY) in 2002 proposing a pdf for the stock returns in the Heston model. However, in a paper by Daniel, Bree and Joseph, they actually perform statistical ...

Why is the implied volatility of this option at the ATM strike (18$) greater in the front month (March) than in a further month (Oct).
The Oct month has 43%, but the front month has 54%.
Should not ...

It is said that implied volatility of an option rises leading up to an earnings report or a pending news event like FDA trial, a possible takeover,elections(?) etc.
My question is, implied volatility ...

Suppose somebody provides us with a surface of European call prices $C(\tau,K)$ where $\tau$ stands for time-to-maturity and $K$ for the strike. By Dupire's results, there is a unique local volatility ...

There are many models available for calculating the implied volatility of an American option. The most popular method, employed by OptionMetrics and others, is probably the Cox-Ross-Rubinstein model. ...

Is there a way to calculate the price of a binary option (i.e., an option that pays out 1 dollar when the stock price hits $x$ amount) using market call/put option prices, forward prices, etc. for a ...

how are we supposed to price an European option given the fact that the daily return of the underlying is limited within -X% to X%?
For example, if X = 5, the price of the underlying cannot go up 8% ...

I need some clarifications regarding spread options. I have always found them characterized as paying, at maturity, the difference between the prices of two underlying assets:
$$ (S_1(T)-S_2(T)-K)^+ ...

what is the good way to pricing american option on bond future?
From bonk fixed income securities 3rd by Tuckman, I understand how to pricing European option on bond future, but I still have no clue ...

I need to calculate the price of exchange option between 2 assets $S_1$ and $S_2$
The formula is given here Wiki: Magrabe formula or here Quant Stack Exchange.
In the derivation of the formula it is ...

I have discussion with my colleague on why a general assumption $$ud=1$$ in binomial tree option pricing model would be necessary?
I take it a simplification of the problem, otherwise, there will be ...

I want to estimate an empirical pricing kernel for an index. Hence, I need to estimate a physical and risk neutral density. For estimating the physical density, only the index data in an observed time ...

Suppose it is known that the price of a certain security after one period will be one of the $m$ values $s_1,\ldots,s_m$. What should be the cost of an option to purchase the security at time $1$ for ...

I'm working out the examples in the paper "Changes of Numeraire, Changes of Probability Measure and Option Pricing", corollary 3.
An option of exchanging asset 2 against asset 1 at time T, its time-0 ...

I am so stuck on this question:
Consider a two-asset model where asset 0 is cash, so that the price of asset 0 is $B_t=1$ for all $t \geq0$. Asset 1 has prices given by $dS_t = a(S_t) dW_t$, where the ...

It is well known that the theta of call option is always negative. Also, the theta of (at the money call option) goes to infinity as the time approaches to the maturity. On the other hands, (ITM and ...

Hello I am doing an analysis on covered calls with and extra amount of naked calls. Ignore the symbol and current macroeconomic events.
I couldn't find any reference to this strategy (unbalanced is ...

Why is the gamma for an at the money option less when volatility increases.
Intuitively ,I thought that increasing volatility means more uncertainty,hence the option price will be more sensitive to ...

Stephen Ross’ new paper claims that it is possible to separate risk aversions and historical probabilities if the Stochastic Discount Factor is transition independent using Perron-Frobenius Theorem.
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